In some situations, a student will be entitled to receive a refund from a university. For example, a student who needs to pay ten thousand dollars in tuition and who receives fourteen thousand dollars in financial aid could be entitled to a four thousand dollar refund from the university. Moreover, a university policy and/or a governmental regulation might require that the refund be provided to the student within a pre-determined period of time. For example, the United States Department of Education (DOE) might require that certain refunds be transferred from a university within fourteen days. This can be a difficult task, especially when a significant number of refunds need to be provided and/or when different students want to receive refunds in different ways (e.g., by a direct deposit to a bank account or a paper check mailed to a student's address). For example, in order to transfer a refund amount from a university within a pre-determined period of time, the university might attempt to collect transfer instructions (e.g., bank account numbers) from students before the refund amounts are determined. In some cases, however, a student might not provide the proper instructions in a timely manner. As a result, the university might need to print a paper check for such a student and wait for the student to retrieve the check from a Bursar's Office. Such an approach, however, can cause confusion (for both the student and the university) and might prevent the student from receiving the refund in way he or she prefers.
In addition to any timeliness requirements, a university policy and/or a governmental regulation might mandate that student refunds be adequately insured or otherwise protected (e.g., to protect students if a bank or other institution becomes insolvent). For example, state law might require that all student refunds associated with state universities be kept in accounts that are fully insured. Such a requirement can complicate transactions for a university (e.g., a bank holding refund payments for a university might need to deposit an equivalent amount of its own funds in yet another bank). Note that failing to comply with any of these requirement might have serious consequences for a university (e.g., it might be disqualified from participating in a financial aid program).
Many financial transactions involve the payment of funds from a first party (“payor”) to multiple related parties (“payees”). Often, the legal rights of each payee, with respect to the payment of funds, are complicated and inconsistent. For example, when an insurance company pays a claim, in addition to the insured, there are often third parties such as attorneys that have a right to at least a portion of the funds. In another example, when a bank funds a loan to co-signing parties, each of the co-signing parties typically has a legal right to the funds.
As a result, to ensure the funds are properly paid to appropriate payees and to absolve itself of any liability with respect to the same, the payor typically verifies the rights of each payee and verifies the identity of each payee before releasing funds to each payee. Insurance companies typically accomplish this by issuing a paper check that is made payable to all of the identified payees. As a result, all payees must endorse the paper check for any to receive the funds. Similarly, in the example of co-signing parties such as school loans that require a co-signature of a parent, the paper loan checks are typically made payable to both the student and the co-signing parent. Both the student and parent must endorse the paper check to receive the funds.
For large institutions, issuing paper checks is typically a slow, expensive, and inconvenient process. As a result, payees have longer wait times to be paid. In addition, verifying endorsements on paper checks is a difficult task, which can lead to the commission of fraud by one or more payees. The use of paper checks is also inflexible. Many complex transactions involve adverse payees, which requires a flexible solution to ensure that each payee is timely paid. Obtaining the endorsement of each adverse payee is often not achievable.